Dutch decree on tax consequences of withdrawal of the UK from the EU

On 29 January 2020, the Dutch Ministry of Finance published a decree (no. 2020-20786; the Decree) explaining the main Dutch tax consequences of the withdrawal of the United Kingdom (UK) from the European Union (EU) as from 1 February 2020.

Where do we currently stand?

Under the Agreement on the withdrawal of the UK from the EU (the Withdrawal Agreement), a transitional period up to and including 31 December 2020 has been agreed upon, under which – in essence – EU law (including case law of the Court of Justice of the EU) remains valid in relation to the UK. This means that for the duration of the transitional period, the UK will be considered to be an EU member state for EU law purposes, as well as the domestic implementation of EU law.

The Decree includes that, on this basis, for Dutch tax purposes, the UK will also be considered to be a member state of the EU up to and including 31 December 2020. For completeness’ sake, as the Withdrawal Agreement provides for a transitional period, the Decree confirms that the draft decree that was published in March 2019 (link), which provided unilateral rules to avoid certain “no-deal Brexit” consequences under Dutch domestic law, is at this stage no longer necessary.

What happens after the end of the transitional period on 31 December 2020?

Whether there will be any Dutch tax consequences after 31 December 2020 depends on the outcome of the negotiations on a trade agreement between the UK and the EU, which are currently in progress. It is not yet known to what extent and how taxes will be covered by the future trade agreement and what consequences this would have for Dutch taxes.

In the event that no trade agreement is reached before the end of 2020 and the transitional period would not be extended, there may be an immediate impact as per 1 January 2021 for (certain) Dutch resident taxpayers in e.g. the fields of Dutch dividend withholding tax, VAT, corporate income tax (e.g. innovation box, participation exemption, fiscal unity, and country-by-country reporting), personal income tax and social security.

If you would like to know more about the potential scenarios for the post-transition phase and related tax consequences, please contact your trusted adviser at Loyens & Loeff or one of the tax members of our dedicated Brexit team, who would gladly assist in assessing, quantifying and limiting the potential tax risks related to the UK’s withdrawal from the EU. We will keep you informed on further developments.

Marc Klerks is a partner in Loyens & Loeff’s International Tax Services practice group and heads the practice in our London office. From 1995 through to 1998 Marc worked at Loyens & Loeff’s New York office and headed the London office from 2000 to 2006.

Stephan is a member of the Transfer Pricing & Economics Team and the International Tax Services practice group in our London office. He focuses on matters of international (corporation) tax, transfer pricing, tax decision making and tax modelling.